Egyptian pound breaches 50 to the dollar ahead of T-bill maturities

By Patrick Werr

CAIRO, Dec 5 (Reuters) - The Egyptian pound weakened to close at 50.0024 to the dollar on Thursday, having breached the 50 pound psychological barrier for the first time since March, Egypt's central bank said.

The pound has traded within a narrow range just short of 50 to the dollar since Egypt signed an $8 billion financial support package with the International Monetary Fund on March 6. Under the IMF agreement, Egypt pledged to let supply and demand determine the currency's value.

The currency has been coming under particularly strong pressure in recent weeks ahead of the imminent maturing of Egyptian pound treasury bills held by foreign investors and the due dates of other payments, bankers, brokers and analysts said.

Foreigners were heavy buyers of nine- and 12-month Egyptian treasury bills in the weeks after Egypt signed the IMF agreement, and these are maturing in December and March, creating a potential spike in demand for dollars should enough investors seek to repatriate their funds.

Over one trillion pounds worth of local currency treasuries are due to mature in each of December and March, according to one banker's calculations using central bank data.

James Swanson of Capital Economics said it was unclear if investors would roll over their T-bills or sell them out of concern that Egypt was not moving fast enough in implementing reforms agreed with the IMF.

"If there is the sharp slowdown in inflation that we expect in Feb/March that could provide a trigger to some foreign investors to invest in longer duration bonds," he said.

A broker who deals in Egyptian treasuries said foreign investors were in the secondary market in force this week selling treasuries that mature in March.

Sri Virinchi Kadiyala of Abu Dhabi's ADCB said that to maintain investor confidence Egypt would have to show signs reforms were continuing.

"We sense a growing fatigue within the government on undertaking further subsidy reforms, with government officials already ruling out any further moves that raise the cost of living," he said.

An IMF team concluded a week-long visit to Cairo on Nov. 20 for discussions on the latest review of the loan programme, saying Egypt had made substantial progress. The IMF's board has yet to schedule a meeting to discuss the review.

Egypt has $933 million in repayments to the IMF coming due in the second half of December for borrowings under previous programmes, according to IMF data.

In addition, rapid growth in Egypt's money supply has put pressure on the dollar exchange rate while helping to fuel inflation. M2 money supply grew by 29.59% in the year to end-September compared to 2.6% in the United States.

In the year before the agreement, the central bank had kept the currency fixed at 30.85 to the dollar, leading to a severe shortage of foreign currency in the Egyptian market and a slowdown in vital imports. (Reporting by Patrick Werr and Adam Makary. Editing by Mark Potter/Keith Weir)